A version of this post first appeared on TKer.co
The word “uncertainty” gets thrown around a lot in discussions about the stock market.
And it’s not surprising. There is literally always something to be uncertain about. In fact, uncertainty defines the risk stock market investors take as they bet on a future that isn’t guaranteed. Uncertainty gives risk-tolerant investors the opportunity to buy stocks at a discount. Uncertainty is why the returns in the stock market tend to be relatively high.
But far too often, pundits will appear on TV or get quoted in a news article casually saying that “uncertainty is elevated” — when in fact uncertainty may be at normal levels. Because there is always uncertainty, and any implication that there can be periods with no uncertainty is ridiculous.
Of course, there are times when uncertainty explodes above typical levels. And they come with some very glaring signs.
Five years ago this week, the World Health Organization declared that COVID-19 as a pandemic.
In the weeks prior, there had already been concerns about the seriousness of the outbreak. But it wasn’t until mid-March that we began to see huge parts of the economy get shut down in the effort to contain the spread of the virus. And it would be months before we got a sense of what this unprecedented disruption would mean for the economy.
Businesses around the world were not prepared.
Most companies operate assuming a range of probable future outcomes. And for many publicly traded companies, the midpoint of that range is presented to investors in the form of quarterly and annual financial guidance. As the quarter and year proceeds, companies will sometimes raise guidance. Sometimes they’ll lower guidance.
Things have to get really bad for companies to withdraw or suspend guidance.
That’s exactly what a flood of companies did in early 2020 as they had little to no visibility into what business would look like in the near term.
According to BofA, 71 S&P 500 companies withdrew guidance from March 2 to April 7 that year.
Zooming out a bit, 173 Russell 3000 companies withdrew guidance during the first quarter, according to S&P Global.
“The question for managers is: Do they know about future performance substantially more than investors do?” NYU Professor Baruch Lev . “My guess is that in most cases managers aren’t now better informed than investors. We are all in the dark. In that case, guidance is futile.”
It’s one thing for a company to revise guidance lower. It’s another much scarier thing for a company to admit they just don’t know where things are headed.
That’s real uncertainty.
This speaks to : “The most destabilizing risks are the ones people aren’t talking about.”
Pandemic risk was effectively on no one’s radar going into 2020. Companies didn’t have plans for addressing it, and it wasn’t priced into the market. It’s why the S&P 500 was able to rally to its then record high of 3,393 on February 19 before tumbling 35% to its low of 2,191 on March 23.
As you’ll see in this week’s review of macro crosscurrents below, mentions of “uncertainty” about tariffs are appearing everywhere. Most informed folks agree raising tariffs is a , so an uptick in uncertainty is warranted.
And a lot of companies have said that the effect of tariffs . Maybe we’ll soon hear about companies revising their guidance lower.
But will companies start withdrawing guidance in droves? I’m not convinced they will.
The threat of tariffs has been out there . And for months, many companies have new tariffs, including ahead of tariffs and once tariffs are imposed.
It would’ve been much worse if President Trump had announced the imposition of tariffs with no warning.
To be clear, tariffs and global pandemics are two very different things. But both are similar in that they come with supply chain disruptions and higher costs of goods. And the more advanced notice companies have, the more time they have to prepare operations for the risk.
This is not to say we won’t experience market volatility in the coming months. The S&P 500 experiences an .
But I think we should the resilience of Corporate America, especially when they’ve had time to prepare for what may be coming.
What happens when people believe uncertainty is low? Below is an excerpt from the :
… I can recall two times in recent memory when the market environment seemed pretty comfortable.
In the fall of 2017, everything in the economy seemed to be moving in the right direction while the stock market was trading at all-time highs. And consumers took notice. From the University of Michigan’s November 2017 consumer sentiment survey:
“What has changed recently is the degree of certainty with which consumers hold their economic expectations. In contrast to the media buzz about approaching cyclical peaks and an aging expansion, with the implication of greater uncertainty about future economic trends, consumers have voiced greater certainty about their expectations for income, employment, and inflation. Inflation expectations have shown the smallest dispersion on record, and increased certainty about future income and job prospects has become a key factor that has supported discretionary purchases.”
When’s the last time you’ve heard the word “certainty” used so frequently in the context of the markets or the economy?
Early 2020 was another period where things seemed to only be looking up. then compared to late 2017.
Of course, the market would prove cruel…
Read the rest at:
There were several notable data points and macroeconomic developments since our :
The labor market continues to add jobs. According to the report released Friday, U.S. employers added 151,000 jobs in February. The report reflected the 50th straight month of gains, reaffirming an economy with growing demand for labor.
Total payroll employment is at a record 159.2 million jobs, up 6.9 million from the prepandemic high.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — ticked up to 4.1% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since November 2021.
While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.
Wage growth ticks higher. Average hourly earnings rose by 0.3% month-over-month in February, down from the 0.4% pace in January. On a year-over-year basis, this metric is up 4.0%.
Businesses warn costs are going up. From the New York Fed’s of businesses in the New York-Northern New Jersey region: “Looking ahead, firms expect more significant cost increases in 2025. On average, service firms expect costs to rise at a 5.7% pace, while manufacturing firms expect cost increases to rise 2.5 percentage points to 7.3%.”
The threat of tariffs is playing a big role in these expectations. From the NY Fed: “Indeed, higher cost expectations were related to the import share of firms’ inputs — a measure of potential exposure to tariffs. About 82% of service firms and 86% of manufacturing firms in the survey reported some use of imported inputs, which speaks to the globally integrated nature of firms in the U.S. economy.”
And companies are being frank about their intention to . From the NY Fed: “Among service firms, the average annual price increase moved lower in both 2023 and 2024 but is expected to rise from about 4% to about 5% over the next year. Among manufacturing firms, the average annual reported price increase was 3.2% in both 2023 and 2024, but price increases are expected to rise by over 2 percentage points to 5.4% in 2025.”
Trade deficit balloons. The U.S. expanded to a record $131.4 billion in January as imports surged 10% to $401.2 billion and exports increased 1.2% to $269.8 billion.
Evidence suggests the spike in imports reflects U.S. companies stockpiling goods ahead tariffs announced by the Trump administration.
Job switchers still get better pay. According to , which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in February for people who changed jobs was up 6.7% from a year ago. For those who stayed at their job, pay growth was 4.7%
Unemployment claims fall. declined to 221,000 during the week ending March 1, down from 242,000 the week prior. This metric continues to be at levels historically associated with economic growth.
Federal layoffs brought by the Trump administration’s Department of Government Efficiency appear making their way into the data. Initial claims filed by federal employees jumped to 1,634 in the week ending February 22, up from 614 the week prior.
Labor productivity inches up. From the : “Nonfarm business sector labor productivity increased 1.5% in the fourth quarter of 2024 … as output increased 2.4% and hours worked increased 0.8%. … From the same quarter a year ago, nonfarm business sector labor productivity increased 2.0% in the fourth quarter of 2024. Annual average productivity was revised up 0.4 percentage point to an increase of 2.7% from 2023 to 2024.”
Card spending data is holding up. From JPMorgan: “As of 28 Feb 2025, our Chase Consumer Card spending data (unadjusted) was 4.4% above the same day last year. Based on the Chase Consumer Card data through 28 Feb 2025, our estimate of the US Census February control measure of retail sales m/m is 0.23%.”
From BofA: “Total card spending per HH was up 1.4% y/y in the week ending Mar 01, according to BAC aggregated credit & debit card data. But, y/y card spending growth was down 0.3% in the week ending Mar 01 in Washington, DC MSA likely due to DOGE job cuts. Y/y card spending growth has recovered in the snowstorm impacted regions of South, MW and NE in the week ending Mar 01.”
Gas prices tick lower. From : “The national average for a gallon of gas dropped a penny since last week to $3.11 thanks in part to softer oil prices. Some drivers could see fluctuations at the pump due to markets and retailers reacting to news of tariffs and the transition to summer-grade gasoline, which is more expensive to produce. “
Manufacturing surveys were mixed. From S&P Global’s February : “A rise in the PMI to a 32-month high signals an improvement in the health of the manufacturing sector which may only be skin deep. Although manufacturing production grew at the strongest rates since May 2022 and new orders increased at the best pace in a year, there’s much to suggest that this improvement could be short lived. Production and purchasing were often buoyed by companies and their customers building inventory to beat price hikes and supply issues caused by tariffs. Exports have meanwhile slumped and supplier delivery delays were the most common since October 2022 amid disruptions to trade caused by tariff worries.”
The ISM’s reflected growth, but slowing growth.
A popular theme in the surveys was “uncertainty” regarding “tariffs.”
Services surveys were mixed. From S&P Global’s February : “Expectations for output growth have also been revised sharply lower as service providers have become increasingly worried over signs of slower demand growth and uncertainty over the impact of new government policies, ranging from tariffs and trade policy to federal budget cutting.”
The ISM’s reflected accelerating growth
Similar to the ISM Manufacturing report, a popular theme in the services surveys was “uncertainty” regarding “tariffs.”
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
Construction spending ticked lower. declined 0.2% to an annual rate of $2.19 trillion in January.
Mortgage rates tick lower. According to , the average 30-year fixed-rate mortgage declined to 6.63% from 6.76% last week. From Freddie Mac: “As the spring homebuying season gets underway, the 30-year fixed-rate mortgage saw the largest weekly decline since mid-September. The decline in rates increases prospective homebuyers’ purchasing power and should provide a strong incentive to make a move. Additionally, this decline in rates is already providing some existing homeowners the opportunity to refinance. In fact, the refinance share of market mortgage applications released this week reached nearly 44%, the highest since mid-December.”
There are in the U.S., of which 86.6 million are and (or ) of which are . Of those carrying mortgage debt, almost all have , and most of those mortgages before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
Offices remain relatively empty. From : “Peak day office occupancy was 60.8% on Tuesday last week, down four tenths of a point from the previous week. In Washington, D.C., Chicago, and Philadelphia, Wednesday occupancy rose significantly after last week’s winter weather, increasing 35.7 points to 59.6%, 21.5 points to 65.5%, and 12.8 points to 50.5%, respectively. In Dallas, the effects of winter weather caused Wednesday occupancy to fall more than 20 points to 49.7%. The average low was on Friday at 32.5%, down 3.9 points from last week.”
Near-term GDP growth estimates are tracking negative. The sees real GDP growth declining at a 2.4% rate in Q1.
Matthew C. Klein against reading too much into the recent drop in the GDPNow model. This metric incorporates the uptick in gold imports, which is not included in the .
Earnings look bullish: The long-term for the stock market remains favorable, bolstered by . And earnings are the .
Demand is positive: Demand for goods and services is , and the economy continues to grow. At the same time, economic growth has from much hotter levels earlier in the cycle. The economy is these days as .
But growth is cooling: The economy remains very healthy, supported by , though momentum is slowing. Overall, job creation , and the Federal Reserve — having — has .
Actions speak louder than words: We are in an odd period given that the hard economic data has . Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, is that the hard economic data continues to hold up.
Stocks look better than the economy: Analysts expect the U.S. stock market could , thanks largely due to . Since the pandemic, companies have adjusted their cost structures aggressively. This has come with and , including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is .
Mind the ever-present risks: Of course, this does not mean we should get complacent. There will — such as , , , , etc. There are also the dreaded . Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that and are developments that all long-term investors to experience as they build wealth in the markets. .
Think long term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets over time. , and it’s a streak long-term investors can expect to continue.
A version of this post first appeared on TKer.co
